Construction Line of Credit: A Contractor's Complete Guide

A construction line of credit is a revolving credit facility a contractor can draw from repeatedly, up to a set limit, and pay interest only on the balance actually used — making it built for the stop-and-start cash flow of jobs where you fund labor and materials weeks before an owner or general contractor pays you. Unlike a term loan that arrives as one lump sum, a line stays open: you borrow when a project ramps up, repay as invoices clear, and borrow again on the next mobilization without reapplying. That reusability is why it fits an industry defined by progress billing, retainage, and unpredictable payment timing. This guide explains how a construction line works in practice, what lenders scrutinize, what it really costs, and what to do when the bank's requirements — often six months to two years in business and a 600-plus credit score — put a traditional line out of reach.

What a construction line of credit actually is

A line of credit works less like a loan and more like a reusable spending limit. A lender approves you for a ceiling — say $50,000 or $250,000 — and you draw against it as needs arise. You pay interest only on the drawn balance, not the full limit, and as you repay principal, that capacity becomes available again. This revolving structure is the defining feature: a $100,000 line you draw and repay several times a year can move far more than $100,000 of working capital across twelve months.

Two structural details matter most for contractors. The first is the draw period versus the repayment period. Many lines run on a draw period during which you can borrow freely and often make interest-only payments, followed by a repayment period when the outstanding balance amortizes and the line closes to new draws. Revolving lines from banks and fintech lenders may instead reset continuously with no hard draw window. The second is secured versus unsecured. A secured line is backed by collateral — equipment, receivables, or a blanket lien on business assets — which usually buys a higher limit and a lower rate. An unsecured line carries no specific collateral pledge, approves faster, and prices higher to compensate the lender for that risk. Most contractors are quietly offering a personal guarantee either way, meaning your own credit and assets stand behind the business's promise to repay.

Why construction cash flow specifically needs a line

Construction is one of the few industries where you routinely spend the most money at the exact moment you have collected the least. That gap is not bad management — it is baked into how the industry pays. Three mechanics drive it:

• Progress billing and the payment lag. You bill in stages as work completes, then wait 30, 60, sometimes 90 days for the check. Meanwhile payroll runs weekly and material suppliers want net-30 at best.
• Retainage. Owners and general contractors commonly hold back 5 to 10 percent of each payment until the entire project is finished and accepted. On a large job, that withheld amount can exceed your entire profit margin and sits uncollected for months.
• Mobilization costs. Before you can bill a dollar, you may need to buy materials, rent equipment, and staff up. The heaviest cash outflow often comes before the first invoice goes out.

A line of credit is designed to bridge exactly these gaps. You draw to cover payroll and materials during the lag, then repay when the progress payment and eventually the retainage arrive. Used this way, a line smooths the timing mismatch without permanently adding debt to the balance sheet.

What lenders check before approving a line

Traditional lenders underwrite a construction line on the business's stability and the owner's credit. Typical baseline expectations from banks and established online lenders look like this — though every lender sets its own thresholds:

• Time in business: often six months at a minimum, with the best terms reserved for two-plus years.
• Revenue: a floor on annual gross revenue, frequently in the range of $50,000 or higher.
• Personal credit: commonly a 600-plus FICO for unsecured lines; secured lines may flex lower.
• Documentation: business bank statements, financial statements, tax returns, and often a schedule of open contracts, project budgets, and an equipment list so the lender can gauge your pipeline.

Construction adds wrinkles most other industries don't. Lenders know contractor revenue is lumpy and project-dependent, so they lean hard on bank-deposit patterns and your backlog of signed work. A contractor with strong, consistent monthly deposits and a full pipeline can sometimes offset a thinner credit file — which is precisely the logic that revenue-based financing takes further.

What a construction line really costs

Cost is where marketing pages tend to go quiet, so here is the honest picture. A line's price shows up in more than the headline rate:

• Interest on the drawn balance. Bank lines are often quoted as a variable APR tied to the prime rate plus a margin. Online and fintech lines run higher.
• Draw fees. Some lenders charge a small percentage each time you pull funds — a real cost if you draw frequently.
• Maintenance or unused-line fees. A periodic charge for keeping the facility open, sometimes assessed on the undrawn portion.
• Origination. An upfront fee to establish the line.

The table below shows how the same drawn amount can carry very different carrying costs depending on the product. All figures are illustrative examples, rounded for clarity — your actual terms will vary.

The lesson is not that one product is always cheapest — it is that speed, approval odds, and cost trade off against each other. A bank line is the least expensive money if you can qualify and wait for it. Faster, easier-to-qualify products cost more, and you accept that premium in exchange for capital arriving when a job actually needs it.

When a line is hard to get — the revenue-based alternative

Plenty of capable contractors can't clear a bank line's bar. Maybe the business is under a year old, the personal credit score sits below 600, or two seasons of uneven deposits make the financials look shakier than the pipeline really is. When a traditional line is out of reach or simply too slow, a revenue-based advance through a financing marketplace is the common fallback.

The underwriting logic is different in a way that favors contractors. Instead of anchoring on your credit score, a revenue-based funder looks primarily at your business bank-deposit history and monthly revenue — the money actually moving through your account. Because construction generates steady deposits even when credit is thin, this approach often approves businesses a bank would decline. General characteristics of this route:

• Qualification leans on bank deposits and monthly revenue far more than on FICO.
• Credit is considered but flexible — many programs work with scores around 500 and up.
• Funding amounts commonly start around $10,000 and scale with your revenue.
• Speed: approvals and funding frequently land within 24 to 48 hours once bank statements are in.
• Repayment is typically a fixed total (the advance times a factor rate) paid back through scheduled remittances tied to your cash flow.

A marketplace matters here because it shops your file across multiple funders from one application rather than sending you door to door. That said, approval is never guaranteed — every funder still reviews your deposits, revenue, and existing obligations before making an offer. Revenue-based capital costs more than a bank line, so it fits best as fast bridge money for a specific, revenue-producing purpose: covering payroll on a job that will bill next month, buying materials to start a signed contract, or floating retainage you know is coming.

How the products compare side by side

Contractors rarely choose between a line and nothing — they choose among several financing shapes. This comparison lays out the practical trade-offs. Figures are representative examples, not quotes.

Read this as a ladder, not a ranking. Start with the cheapest capital you can actually qualify for and receive in time. When a bank line's timeline or credit bar doesn't fit the job in front of you, move down the ladder to a faster product and treat the added cost as the price of not stalling the project.

Using a line without getting into trouble

Any revolving credit can quietly turn from a tool into a trap. A few disciplines keep a construction line healthy:

• Match the draw to a paying job. Draw against work that will bill, and repay from that specific payment. Borrowing to cover a shortfall with no incoming payment behind it is how balances become permanent.
• Track retainage as a receivable, not lost money. Know exactly how much is being withheld and when it releases, so you're not surprised by a cash gap you could have planned around.
• Avoid stacking. Layering multiple advances or lines on top of each other multiplies your remittance obligations and is a leading cause of contractor cash crunches.
• Watch the personal guarantee. Most small-business lines put your personal credit and assets on the line. Treat the balance with the seriousness that implies.

On taxes, the general principle in the U.S. is that borrowed principal is not taxable income, and interest and financing fees on funds used for the business are typically deductible business expenses — but treatment depends on your structure and how funds are used, so confirm specifics with a qualified accountant rather than relying on a general guide.

How to move quickly when a job can't wait

If you have time and strong credit, apply for a bank or established online line and get the cheapest revolving capital available. If a project is starting now and the traditional route is too slow or your file won't clear it, a revenue-based marketplace is built for speed. To be ready:

• Gather three to six months of business bank statements — this is the single most important document, because deposit history is what the underwriting turns on.
• Know your average monthly revenue and current obligations, including any existing advances.
• Have the job details handy: the contract, the billing schedule, and what the money is for.
• Apply through a marketplace so one submission reaches multiple funders instead of one lender at a time.

With bank statements in hand, a revenue-based approval can often come back within a day, and funding within 24 to 48 hours — fast enough to make payroll or start a mobilization without losing the job. No responsible funder will promise approval before reviewing your file, but strong, consistent deposits give you real leverage even with a modest credit score.